The Six Sins Of M&A

October 22, 2006

What is the right cycle time for mergers and acquisitions? How do you prepare for integration? What would you do in the first 30 days after closing? --Bernhard Klingler, Linz, Austria

In other words, how do you not screw up M&A? Good question! Because while organic growth gets better press, and it is certainly less fraught with blood, sweat, and tears--not to mention risk--M&A remains the fastest, most powerful tool a company can use to change its competitive game.

As your letter suggests, there's no rulebook for M&A. Fifty years into intense worldwide M&A activity, with thousands of examples to learn from, companies still botch it, too often not realizing the anticipated benefits of a deal. On top of that, many people who live through the "A" part of the process will tell you the whole thing felt a little like a death to them, with their lives turned upside down. Still, no company should shy away from M&A, and it doesn't sound like you plan to. Here, then, is our list of the six most common pitfalls of M&A:

First, beware any "merger of equals." The idea is noble, the reality a mess. The reason is in the premise. If the merging companies are so darned equal, why should either adopt the practices, policies, or people of the other? Mergers of equals routinely come undone over that question as teams spend months dueling over who's in charge.

Second, recognize that the cultural fit of two companies is as important as strategic fit--if not more so. Oh, how exciting it seems when a merger or acquisition makes perfect sense in terms of products, technologies, and numbers. But what a disaster it can and will be if the two companies operate with distinctly different values. The fact is some cultures don't combine--they combust.

Third, run for the hills if you find yourself entering a "reverse hostage" situation. Sometimes an acquirer wants a company so badly it starts making concessions, and by the time negotiations are over, the acquired company is virtually in charge. Don't get yourself in a position where you're wondering: "Why did I pay so much for something I don't really own?"

Fourth, to quote the angel Gabriel: "Be not afraid." When it comes to integration, boldness is the most sensible approach. Ideally, the integration process should be complete at the time of the closing and certainly within 90 days after. Otherwise, uncertainty can morph into inertia, or worse, fear. Both cripple morale--and operations.

Fifth, don't fall into "conqueror syndrome" by marching into your new "territory" and installing your people everywhere. Look, one of the main reasons you do M&A is to get twice the talent to pick from. Of course, acquirers feel loyal to colleagues, but for the new and expanded company to thrive, it needs the best team, even if that means letting go of some of your own.

Sixth, don't pay too much. We're not talking about a 5% premium; that will be lost in the rounding if the deal works. We mean 20% or 30%, which happens too often. The culprit is "deal heat"--the negotiating frenzy fanned by competing bidders and investment bankers. Remember, there is no last best deal, only overheated desire that makes it feel that way.

Now, we realize that six traps are a lot to avoid, especially in the turbulence before any deal. But if you fall into one or two along the way, acknowledge your mistake, and climb back out. Organic is great, but M&A can add real firepower to your growth arsenal.

I really believe in my company's product and respect my colleagues and bosses. But I'm overwhelmed by the ever-increasing demands of work and my young family. Part of me wants to find a new job, but maybe that's shortsighted. Your advice? --Anonymous, Chicago

Stay! You've got a good thing going. How often does someone say he really likes the "big three" of work: company, product, and people? But we hear you about burnout. That's a problem in any high-powered job and a dynamic certainly exacerbated by conflicting demands. A person just can't give 100% to everything and everybody at the same time.

So you'll need to make a trade-off. Maybe it will be working someplace less draining. Maybe it will be spending less time with your family. But don't decide until you've tried every strategy to make your balancing act more livable. In your condition, the last thing you need is the additional stress of knowing you left a good thing behind. Give work a chance.